Posted by: Adrienne Carter on May 1, 2006

In a number of recent entries, I’ve railed against mutual fund companies for letting funds get too big. The case in point: Fidelity’s Contrafund. Now, for investors in such funds, the asset-bloat is not necessarily a reason to run for the door. But you do need to keep an eye on the fund to see if returns drag or the manager changes strategy. Investors looking for a place to put some new cash, however, such asset bloat should be a major red flag.

That said, as one reader pointed out to me, there is a lot you can learn from these fund managers. There is after all a good reason why the fund is so big, namely their investment returns have been stellar. Will Danoff, Contrafund’s manager, has been lauded by mad man Jim Cramer.

So even though I wouldn’t recommend putting new money into this whale of a fund, I would recommend taking a look beneath the hood. See what such top fund managers are buying and why. Concentrated funds that own just 20 or so stocks are especially interesting since each stock investment counts for a whole lot more.

Danoff owns more than 400 names, and he hasn’t added anything new to his top 25 holdings. But he has been increasing his stakes in the majority of those names, including Google, Genentech and P&G. In fact there are only a few in that list that he’s been reducing like 3M, ExxonMobil, and EnCana. This doesn’t mean out you should rush out and buy or sell any of these names. But it does mean they’re worth a second look.

You can also get some good insight from reading a manager’s investment commentary. Fidelity’s tend to be more boilerplate. But there are plenty of managers out there that really dig into the details of their portfolio. Among them: FPA’s Bob Rodriguez, Legg Mason’s Bill Miller, Longleaf Partners, David Funds.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money.
Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.